Private Sector Engagement (PSE) and Market Systems Development (MSD): Improving Each Other
Updated: Sep 2, 2022
Editor's note (Michael Field from the Vikāra Institute):
The blog provides a nice overview of USAID’s thinking on PSE and MSD. An interesting element of the discussion of PSE and MSD is the role of multinational firms versus smaller national-level firms, including SMEs. Practically, it can be challenging to have a lot of face time with an individual SME, especially when a project may have to influence hundreds of SMEs. At the same time, there are PSE efforts that work with a single multinational corporation with the understanding that the reach of such a firm could be leveraged for systemic change. As the blog suggests, the differences seem less important than the shared principles that any interventions, whether defined as PSE or MSD, should be catalytic and lead to ongoing positive change in how the firms and systems function.
There is a growing amount of convergence between PSE and MSD. For practitioners of either approach, there is value in learning more about the tools and techniques of the other to see how they can be useful in advancing the shared goal of transformational change.
As the Feed the Future Market Systems and Partnerships (MSP) Activity launches a new brief exploring this topic, Towards Transformational Impact: Synergies of PSE and MSD, Katie and Kristin unpack their thoughts.
What does USAID see in the PSE/MSD connection that led to commissioning this piece?
Kristin: How are PSE and MSD different? Aren’t they the same thing? I’ve been asked those questions more times than I can count. And while I had developed a quick personal response, it needed some deeper diligence to really understand how the two approaches are related.
A while back, MSP brought together a group of experts, including both USAID and implementing partners, that work with these approaches to inform this brief to help us all better navigate these questions. It’s no surprise that there is a lot of overlap between the two approaches. In fact, that is why we designed the MSP Activity the way we did: to bring the two approaches together in one mechanism for joint learning.
Katie: Like Kristin, I too have been asked many times how USAID defines PSE and MSD. As noted in the brief, both intersect around a common ambition to drive transformational change through engagement with market actors. However, each approach comes from a unique perspective and, in some ways, over time the approaches have become more aligned. Also as Kristin noted, we began thinking about the similarities in these approaches several years back when we wanted to design and implement a new MSD and PSE program.
Our hope is that through an intentional focus on learning by doing, we would collectively move the field forward as related to areas that held shared business and development value, over time reducing the need for development assistance.
What stands out most to you from the brief?
Kristin: It was much more challenging to articulate the distinctions, particularly given that each professional in the space has their own perspectives on the objectives and tactics under each approach. These nuances between the approaches, because they weren't top of mind, took more effort to establish as a basis of mutual understanding. I think because of this, the “reality check” section of the brief stood out most to me as pointing to clear spaces for embracing differences while still strongly bridging the two.
For example, the level of visibility that USAID seeks is different. In PSE, we want to be a visible, active part of that relationship with a private partner, even if an implementer is managing it day-to-day. I live this as the Agency Relationship Manager for Cargill. But in MSD, using market facilitation, we want to be behind the scenes, emphasizing relationships between market actors and not with us.
Katie: I agree with Kristin that although it’s harder to talk about the differences in the two approaches, I actually loved the shared framing of “scale, sustainability, and systemic change.” These three have been identified as areas that each approach considers, and yet the brief begins to pull apart some of the differences.
Let’s take sustainability, for example. In MSD, the path to sustainability is achieved by working through market actors and by strengthening capacities at the systems level. But with PSE, sustainability is achieved when business practices and/or investments continue beyond our donor support, with sustained benefits, therefore, accruing to target populations and the broader economy.
The brief has a graphic of “puzzle pieces” that illustrates the respective strengths of each approach. Which of the puzzle pieces from the other side struck you as most useful for cross-over?
Kristin: What struck me was the PSE practice around corporate relationship management for both multinationals and local businesses. MSD programs typically approach the private sector with a “self-selection” process in mind - letting firms choose to engage on an opportunity that the program has put out broadly. If that firm’s strategy diverges from program goals later, the relationship ends.
I thought about how the Feed the Future Inova activity in Mozambique, due to the thin market realities of Mozambique, leaned more towards this relationship management approach. They had to work with certain firms (with no other options) so spent time building a deeper relationship. They did joint activities that served as stepping stones to create trust and momentum before getting to the types of things that Inova really wanted to do. It could benefit our MSD programs to think more about the potential utility, even in robust market contexts, of this type of long-term relationship management to drive catalytic change with, particularly influential firms.
Katie: As noted, there has been greater alignment with these two approaches over the last few years. From my perspective sitting in the PSE world, I think we owe a lot to MSD in terms of our broader systems thinking. As noted in the MSD puzzle pieces, PSE has definitely benefited from the concept of crowding in to amplify efforts.
We know that when USAID partners with one private sector actor, this often leads to changes in business practices by their competitors. Also, the deep focus on inclusion and empowerment, especially for women and the poor, has definitely had an effect on the relationships we seek and the partnerships we develop with the private sector.
Now go read the brief and share it with your colleagues!
This blog was authored by Katie Garcia, Deputy Director of the United States Agency for International Development (USAID)’s Private Sector Engagement Hub, and Kristin O’Planick, Market Systems Team Lead in USAID’s Bureau for Resilience and Food Security. It was originally published on Marketlinks.org.